PEST Analysis is an analysis of political, economic, social as well as technological factors in an external environment of an enterprise which can impact the performance and activities.
It involves the accumulation and depiction of information regarding external facets that have an impact on the business. PESTEL analysis is an easier and effective tool involved in condition analysis to determine the crucial external forces that impact an enterprise. All these forces can generate both threats and opportunities for an enterprise. The outcomes of PEST is analysing the complete picture that surrounds the organisation. This kind of analysis is performed for assessing the potential of the new market.
Importance of PEST analysis
- It provides support to spot personal or business opportunities, and it provides prior warning of significant vulnerabilities.
- It suggests the directional change in the business environment. This helps to shape what you are performing to work with the change.
- It helps in preventing starting project which might likely to fail for considerations beyond the control.
- It assists to generate an objective context of the new environment.
The organisations which successfully monitor and respond to the changes in a macro-environment can distinguish from the competition and develop a competitive benefit.
Political factors: It determines the scope to which government policies might impact the particular organisation. This will involve political policy along with stability, fiscal, trade and taxation policies.
Economic factors: These are the factors which impact on the economy as well as performance that in turn impact on the enterprises and the profitability. Factors involve raw material costs, interest rates, employment rates and foreign exchange rates.
Social factors: These factors emphasize the social environment and determine emerging trends. It supports a marketer to know about the customer needs and wants. These factors involve changing education levels, family demographics, attitude changes, cultural trends and change in lifestyle.
Technological factors: These factors analyse the rate of technological advancement and growth which may impact an industry. The factors involve changes in mobile or digital technology, research, automation and development.
Environmental factors: These factors associated with the impact of surrounding environment and influence of ecological facets. Due to rise in significance of CSR, this component becomes more essential. Factors involve carbon footprint, recycling processes, sustainability and waste disposal.
Legal factors: An organisation should understand what is legal and encouraged in territories they operate in. They should know the change in legislation and the affect it imposes on business processes. These factors involve customer law, employment legislation, trade regulations and safety.
How to use PESTLE analysis?
To conduct a PESTLE analysis, the initial step is determining what organisation, product or idea you need to analyse. Then, presuming it is a business that you need to analyse, you should completely explore all the aspect to determining external factors that are playing a part in how it performs and operates. At last, there is need to categorise all these factors.
Advantages and disadvantages of PESTLE analysis
- Provide convenient and simple to use framework for analysis
- Includes cross-functional skills and knowledge
- Assist to decrease the impact of potential threats within an organisation
- Encourages the development of strategic thinking in the organisation
- Encourage to analyse implications of entering new markets both globally and nationally
- Users can generalise the data being used for making decisions
- This process is frequently conducted to be efficient, and usually, organisations don’t make this investment.
- User’s accessibility to quality external data is often limited due to time and cost desired to assemble it.
- Organisations often limit who is engaged due to cost and time considerations. This restricts the method effectiveness as a vital perspective might be a mission from discussions.
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